e-Forex Magazine | Regulatory Roundup | Where to draw the line on the issue of leverage
Regulatory Roundup : Where to draw the line on the issue of leverage
First Published in e-Forex Magazine July 2009
Felix Shipkevich
In this Regulatory Roundup feature Felix Shipkevich, General Counsel at CMS Forex, examines the question of leverage and what factors may influence the way regulators draw the line of what is the appropriate level of leverage that should be allowed to be used by retail clients, if any.
Every morning on my way to the office, I pass a small playground located in the middle of a residential area in lower Manhattan. Next to a sandbox and several swings, there is a see-saw that reminds me of my childhood. Growing up on the heavy side, my weight was a perfect tool to take advantage of the skinnier kids by gearing them high in the air on a long wooden see-saw. My secret mission, to take advantage of my weight on a wooden see-saw beam, got me in trouble a few times with the teachers, who reminded me that gearing up innocent kids was a wrong thing to do.
In many respects, the world of foreign exchange regulation is much like a playground. Retail clients sometimes get hurt while playing wildly and recklessly on the playground of the FX market, and regulators act like teachers or parents that oversee the free-spirited retail clients trying to speculate in the FX market in the hope of winning big. Just like children, retail clients are vulnerable. A wrong decision or a wild bet can cause vulnerability in this high stakes game. But is leverage to blame for retail clients' wrong bets?
